Reason for the changes

AB 1412 (Stats. 2013, ch. 546), signed by the Governor on October 4, 2013, retroactively allows the Qualified Small Business Stock (QSBS) deferral and 50 percent gain exclusion for tax years 2008 through 2012.

Impact

This revision may increase the tax liability for taxpayers who did not report a QSBS exclusion or deferral for taxable years beginning on or after January 1, 2008.

Previous Version

Revision 3:Line 19 – Enter the amount of gain from small business stock that you excluded from gross income under R&TC Section 18152.5 (enter as a positive number).

Revision 4:Line 25 – Enter the amount of your prior year NOL and disaster loss carryover from your 2007 form FTB 3805V, Part III, line 5 and line 6.

Revision 5:Line 27 – Enter the amounts from line 27 on Part III, line 4, column (d) and column (h). If you have an NOL from more than one source, list each loss separately.

If you have an NOL or disaster loss from prior years (line 25), complete Part II and Part III, to determine the loss carryover to future years.

Revision 6:Full Year Nonresidents: Complete Part I, Section B, column A and column B. Enter amounts from line 27 on Part III, line 4, column (d) and column (h).

Revision 7:Complete column A, line 1 through line 27 as if you were a California resident for the entire year.

Revision 8:Complete column B, line 1 through line 27, if you were a nonresident for the entire year.

Revision 9:Complete column C and D, line 1 through line 27 using the dates of transactions. If the dates are unknown because they were not specifically reported to you, then you will need to prorate the amounts. For column C, multiply the amount in column A by the number of days you were a resident divided by 365 days. For column D, multiply the amount in column B by the number of days you were a nonresident divided by 365 days.

Revised Version

Revision 4:Line 23 – Enter the amount of your prior year NOL and disaster loss carryover from your 2007 form FTB 3805V, Part III, line 5 and line 6.

Revision 5:Line 25 – Enter the amounts from line 25 on Part III, line 4, column (d) and column (h). If you have an NOL from more than one source, list each loss separately.

If you have an NOL or disaster loss from prior years (line 23), complete Part II and Part III, to determine the loss carryover to future years.

Revision 6:Full Year Nonresidents: Complete Part I, Section B, column A and column B. Enter amounts from line 25 on Part III, line 4, column (d) and column (h).

Revision 7:Complete column A, line 1 through line 25 as if you were a California resident for the entire year.

Revision 8:Complete column B, line 1 through line 25, if you were a nonresident for the entire year.

Revision 9:Complete column C and D, line 1 through line 25 using the dates of transactions. If the dates are unknown because they were not specifically reported to you, then you will need to prorate the amounts. For column C, multiply the amount in column A by the number of days you were a resident divided by 365 days. For column D, multiply the amount in column B by the number of days you were a nonresident divided by 365 days.

Reason for the changes

The Court of Appeal’s held in Cutler v. Franchise Tax Board (2012) 208 Cal. App. 4th 1247, that the qualified small business stock exclusion and deferral statutes under California Revenue and Taxation Code (R&TC) Sections 18152.5 and 18038.5 are unconstitutional. These sections are now invalid and unenforceable.

Impact

This revision increases the tax liability for taxpayers who reported a qualified small business stock exclusion or deferral for taxable years beginning on or after January 1, 2008.

Previous Version

1. Note: new section added.

2. Designated Disasters

Year

Code

Event

2011

49

Mendocino County Tsunami Wave Surge 03/11

Revised Version

1. What's New

Disaster Loss Deductions –– Disaster loss deductions are allowed for losses sustained in the County of Santa Cruz as a result of the severe storms that occurred in March 2011, and for losses sustained in the Counties of Los Angeles and San Bernardino as a result of the severe winds that occurred in November 2011.

Taxpayers may make an election under IRC Section 165(i) on a prior year return or an amended return filed on or before the due date of the return, determined with regard to extension, for the taxable year in which the disaster occurred.

These disasters qualify for the 20 year general NOL carryover provision, instead of the 15 year carryover provision. These disaster loss deductions are allowed at 100%.

In addition, any provision of law that suspends, defers, reduces, or otherwise diminishes the deduction of a NOL does not apply to a NOL attributable to the losses sustained in the Counties of Santa Cruz, Los Angeles and San Bernardino.

For more information, refer to R&TC Sections 17207.11 and 17207.12.

2. Designated Disasters

Year

Code

Event

2011

51

Los Angeles and San Bernardino County Severe Winds 11/11***

2011

50

Santa Cruz County Severe Storms 03/11***

2011

49

Mendocino County Tsunami Wave Surge 03/11

*** The Santa Cruz County Severe Storms occurred in March 2011 and the Los Angeles and San Bernardino County Severe Winds occurred in November 2011 disaster loss deductions are allowed at 100% and can be carried over for 20 years. Taxpayers can elect to deduct the disaster loss in the prior year return under IRC Section 165(i). Any provision of law that suspends, defers, reduces, or otherwise diminishes the deduction of a NOL does not apply to a NOL attributable to the Santa Cruz County Severe Storms that occurred in March 2011 and the Los Angeles and San Bernardino County Severe Winds that occurred in November 2011. Refer to R&TC Sections 17207.11 and 17207.12 for more information.

Reason for the changes

AB 2332, chaptered in August 2012, added R&TC Section 17207.11. This new law allows disaster loss deductions for losses sustained in the County of Santa Cruz as a result of the severe storms that occurred in March 2011.

SB 1544, chaptered in September 2012, added R&TC Section 17207.12. This new law allows disaster loss deductions for losses sustained in the Counties of Los Angeles and San Bernardino as a result of the severe winds that occurred in November 2011.

Taxpayers can claim the disaster loss deduction in the taxable year in which the disaster occurred or on a prior taxable year’s return.

Impact

If a taxpayer claims a disaster loss deduction, the net income for tax purposes will decrease, which will result in a decrease in the tax liability.